Natural Grocers by Vitamin Cottage Inc Earnings: 3 Things to Watch

Is this expensive grocery chain worth the money? Here are three things to help you find out.

Jan 29, 2014 at 4:15PM

There is little doubt the organic and natural food industry represents the most durable and sustained shift in how Americans eat their food since the end of World War II. That realization has led many investors to bid up the prices of new grocers entering the market and focusing on this segment.

The Fresh Market (NASDAQ:TFM), Sprouts Farmers Market (NASDAQ:SFM), and Natural Grocers (NYSE:NGVC) have all traded for more than 30 times trailing earnings over the past year. With such pricey stocks, it's important investors know what to look for when these companies report earnings.

Later this week, Natural Grocers will be announcing earnings, and below, we'll cover three key areas investors should keep their eyes on.

Screen Shot

Source: SEC filings. 

First, let's focus on hard numbers
Currently, Natural Grocers trades for about 72 times trailing earnings, and about 55 times expected 2014 earnings: That isn't cheap. Throw in the fact that 18% of Natural Grocers' share float is being shorted, and you've got a recipe for some wild moves when earnings do come out.

Here's a look at what analysts are expecting:

Expected Revenue

Expected EPS

2014 Revenue Guidance

2014 EPS Guidance

$121 million

$0.11

$540 million

$0.61

Source: E*Trade.

While results from the previous quarter will no doubt affect how the stock performs immediately after earnings are released, longer-term investors should keep an eye on guidance. These metrics let you know how management feels about the company's prospects moving forward.

Same-store sales growth
Because Natural Grocers is growing rapidly, it's important for investors to see that growth is occurring for more reasons than just the building of new stores. That's where same-store sales growth comes in.

If you're paying for a stock as expensive as Natural Grocers, you have to know it's also winning over more customers. For traditional grocers, same-store sales growth above 3% is something to be excited about. But in the natural/organic realm, the bar is higher. Take a look at how Natural Grocers stacks up to its similarly small competitors, and you'll see it's definitely been at the top of its class.

Screen Shot

Source: SEC filings.

As you can see, Natural Grocers and Sprouts are far ahead of The Fresh Market -- as well as their more mature counterpart Whole Foods, which currently posts 6% to 7% bumps -- when it comes to this all-important metric. Over the next year, Natural Grocers sees same-store sales increasing by about 9%. If the company's metric were to fall below that level for last quarter, shares could be in for some short-term pain.

Expansion plans
Finally, investors need to keep a watchful eye on the company's plans to move beyond their home markets in the American West. Whole Foods is far and away the most prevalent natural/organic grocer in the country, as it is rapidly approaching 400 locations.

But Natural Grocers, Sprouts, and The Fresh Market are of a somewhat different ilk, as they have a smaller store size and more neighborhood-y feel to them. Sprouts started out in the American Southwest, and had 163 locations as of last quarter. The Fresh Market started in the Mid-Atlantic and has 146 stores.

All three of these companies need to balance the desire to enter new markets before the others do with the danger that growing too fast could be too expensive, and cause the companies to get away from their core mission.

Natural Grocers is by far the smallest of these three, with 72 locations at the end of last quarter. Here's what their geographical layout looks like:

Screen Shot

Source: Natural Grocers by Vitamin Cottage.

Investors should keep an eye on the pace of expansion the company plans, and how their stores are operating in areas where Sprouts and The Fresh Market have already set up shop. 

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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Brian Stoffel owns shares of Whole Foods Market. The Motley Fool recommends The Fresh Market and Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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